Inflation adjusted retirement income plan.

I like easy-to-understand financial products. I am not very good with numbers and I got flummoxed by complicated structured deposits offered by the banks before. 

Totally confusing.

I also get very confused by complex insurance products. My insurance agents know not to offer me anything that is too complicated. 

I usually tell them not to call me and that if I need something, I will call them.





I have bought products from AIA, Prudential, Great Eastern Life, NTUC Income, Aviva and AXA before and many are still in force. There was UOB Life as well but it was bought over by Prudential.

Today, I came across a product by AXA which claims to be an inflation adjusted retirement income plan. 

Sounds good, doesn't it? 

Intrigued, I decided to have a look see.

However, one look and the initial good feeling is gone:

OK, if you think I am going to start on how we can get better returns by doing our own investment, that is not what I am going to do. I am just going to share an observation which is I just don't think that the product lives up to its claim of being inflation adjusted.

In the example, the product says that there is a 3.5% increase in guaranteed annual income payout year after year from age 65 to 80 but does it provide us with inflation adjusted returns on our capital? 

This is my first impression when someone tells me that a plan is inflation adjusted.

In the example above, a total of $285,300 was contributed over 15 years or $19,020 per year. 

Then, there is a waiting period of 5 years (accumulation period) before a yearly payout over the next 15 years kicks in.

Almost 47% of the payout is non-guaranteed. The guaranteed portion amounts to S$463,500.





Assuming that inflation is lower than 3.5% per annum and that it is a more normalised 3% per annum, that $19,020 paid at age 45 would have to be $34,352.22 to keep its purchasing power intact at age 65. 

In the example, age 65 is when the first guaranteed annual income is received. Instead of $34,352.22, it is only S$ 24,000!

Each payment from age 65 to 80 would have to be at least $34,352.22 in order not to lose any purchasing power, year on year.

The nice chart with the lengthening bars over the next 15 years hides the fact that from age 65 to 75, the purchasing power of the payouts in those years are much reduced. 

Only at age 76 would the guaranteed annual income exceed $34,352.22. 

So, the first 10 years of guaranteed annual income are not able to compensate for inflation!





I don't need the annual payout to grow 3.5%. To me, that is a gimmick to give an appearance that the payouts are inflation adjusted. Just give me $34,352.22 every year as this would truly be inflation adjusted, assuming a 3% inflation rate per annum.

The total guaranteed annual income over a 15 year period should, therefore, be $34,352.22 x 15 or $515,283.33 to make the offer palatable. 

This is 11.17% more than what is guaranteed by the insurer.





Of course, they can say that there is a non-guaranteed component of $407,260 which could be paid out at age 80. 

Well, not only is 80 a long way to go, we need greater certainty at retirement and non-guaranteed just doesn't cut it.

This product is a no go for me.

Related posts:
1. Will I retire happy?
2. Good wife worries...

Ambassadors of financial freedom.

There is this section in The Business Times called "Young Investors' Forum". This is sponsored by Citibank and is targetted at young adults and tertiary students. However, I wonder how many young people read The Business Times?

Now that I have asked this question, I also wonder what is the proportion of young adults and tertiary students in ASSI's readership profile?






We all know that the earlier we start our journey to financial freedom the better it is. Also, there is really nothing smooth about the journey. It is, in fact, rather bumpy as we fall and pick ourselves up again (and again). It also entails sacrifices, many sacrifices.

Everytime I hear a story of some young person who is ruined financially, I would wonder if it was something avoidable. Very often, it was avoidable. If we could help people be more prudent financially, we would be doing good and these people would be better off.






"Today, i counted my life saving."

Today, The Business Times has an article which has some interesting numbers but what proportion of its target audience did it reach? Although ASSI's readership numbers are a small pool compared to The Business Times', I will do my bit.

This is taken from the article:

Saving does not simply help one to accumulate money; it signifies the beginning of one's financial journey.

Realities today further drive home the need for young Singaporeans to save and spend wisely.

A diploma holder earns a starting pay of about $2,000 while a university graduate earns about $2,800 on average.

Using current interest rates for paying a 30 year housing loan and a 5 year car loan, owning a $300,000 4 room HDB flat and a $130,000 Corolla would require a monthly instalment payment of about $2,400!








In such a climate of high housing and car costs, raising a child becomes an even tougher financial decision to make. TheAsianParent last year estimated the cost of raising a child from infancy to 21 years of age to be at least $340,000, not considering inflation.


Although I have blogged about savings and its importance many times before, these numbers are a reality check for anyone who is starting life as a working adult and planning to start a family together with all the attendant expenses. However, how many people who should read the article would have read it?

If we are thinking of buying a property, a car and having children, we should look more carefully at our income and expenses. If we are not saving yet, start saving. If we are already saving, check to see if we are saving enough. What is enough? This would depend on what we want now and in the future. There is, therefore, no one size fits all answer.

The difficult thing for ASSI to do is to reach out to people who have not even started to think about the journey to financial freedom. How do we reach out to these people?







Financial freedom is not a competition. Everyone who achieves financial freedom is a winner. No one is a loser on this journey. There is no fear that having more people on the journey would lower the chances of success for everyone. In fact, the opposite is true.

So, my message to readers is to be ambassadors of financial freedom. Even if the horse would not drink, at least try our best to bring the horse to water. 

We could be saving more than one life if the horse eventually drinks.

Related posts:
1. The very first step to becoming richer.
2. Retiring a millionaire is not a dream.
3. Rich Dad, Poor Dad: 2 are better than 1.